World Leaders Pledge $1.1 Trillion for Crisis

President Obama said Thursday that Americas interests were tied up with the larger world.Credit
Saul Loeb/Agence France-Presse — Getty Images

LONDON — Struggling to bridge deep divides over how to revive a paralyzed global economy, the leaders of the world’s largest economies agreed Thursday to bail out developing countries, stimulate world trade and regulate financial firms more stringently. But President Obama conceded that there were “no guarantees” that those measures would reverse the biggest global downturn in six decades.

Prime Minister Gordon Brown of Britain, host of the Group of 20 summit meeting called to fight the crisis, announced at its conclusion that the leaders had committed to $1.1 trillion in new funds that would greatly increase the capital available to the International Monetary Fund. The goal would be a revival in trade, which is expected to contract this year for the first time in 30 years.

But the combination of loans and guarantees fell short of an injection of fresh fiscal stimuli into the economic bloodstream — the result of a stubborn division between Continental Europe and the United States over whether to act now or wait to see whether existing spending measures took effect.

Moreover, the final accord was far more forceful in addressing the plight of emerging economies that had been sideswiped by the financial crisis than it was in addressing the deep recession in the largest countries where the crisis began.

The proposed remedies, some critics said, treat some peripheral effects of the crisis rather than its thorniest causes. On the critical question of how to grapple with trillions of dollars in “toxic assets” clotting the financial system in Europe and the United States, there was a declaration of goals but few specific actions.

Still, the meeting eased fears that leaders would repeat the failure of a similar gathering in 1933, which was followed by a surge of protectionism that prolonged the Great Depression. It also gave Mr. Obama a high-profile debut on the world stage. He projected contrition about America’s role in starting the meltdown, extolled global resolve to find a way to end the downturn and mediated a dispute between the presidents of France and China over tax havens.

“Today, we’ve learned the lessons of history,” Mr. Obama declared in a news conference in which he was noticeably relaxed, taking questions from journalists from India and China. But he also said that getting more than 20 countries to agree to common steps was particularly hard because “each country has its own quirks.”

The meeting, he said, exemplified the power of developing nations, heralding a new age in which decisions about the future of the global economy will no longer be made by an elite club of Western powers that have set the global rules since the Bretton Woods agreement in July 1944.

Mr. Brown, who organized the meeting in a hangarlike conference center in London, said: “This is the day the world came together to fight against the global recession. Our message today is clear and certain: we believe that global problems require global solutions.”

The most concrete step was a $750 billion reinforcement of the resources of the monetary fund, which has emerged from years of waning relevance to become the first responder in this crisis, lending billions of dollars in emergency loans to dozens of countries.

In addition, the leaders agreed to provide $250 billion in trade credits, needed to finance cross-border trade that has declined roughly 10 percent as a result of the credit crisis and the economic downturn.

Among other steps Mr. Brown detailed were new regulations on hedge funds and rating agencies, as well as a crackdown on tax havens, which will be publicly identified and subjected to sanctions if they do not agree to share tax information with the authorities of other countries. A senior Obama administration official cautioned that the sanctions were “future oriented.”

Stock markets around the world, especially in emerging nations, rose in the hours leading up to the announcement.

Photo

Prime Minister Gordon Brown of Britain spoke with President Luiz Inacio Lula da Silva of Brazil during a group photo session at the G20 Summit in London on Thursday.Credit
Kirsty Wigglesworth/Associated Press

In the United States, however, investors seemed less cheered about a deal emerging from the Group of 20 than about an arcane change in American accounting regulations that would make it easier for banks to defer writing down the value of their most troubled toxic assets. Many financial experts had been hoping that world leaders would address how to dispose of those assets rather than leave bankers to use accounting changes to make them appear less crippling.

“The rich countries are in denial about the depth of the problems remaining in their financial sectors,” said Kenneth S. Rogoff, a professor of economics at Harvard. “They want to congratulate themselves for taking all the right steps already, as if the only problem now is how to help emerging markets.”

In the end, the leaders also papered over one of their most public disputes: whether countries around the world should commit to even greater fiscal stimuli than they had already enacted.

France and Germany balked at American pressure, saying their social safety nets accomplished much of the goal. Mr. Obama largely surrendered the point, agreeing to vague wording that allowed nations the leeway of promising to take whatever steps were necessary for “sustained growth.”

The German chancellor, Angela Merkel, lavished praise on Mr. Obama, saying he “pushed very hard to come to concrete solutions and to have a fruitful discussion.”

The Group of 20 did agree on new global rules to govern the pay and bonuses of bankers. The leaders also agreed to “name and shame” countries that erected trade barriers, intended to resist growing protectionist sentiment.

But a European push for sweeping global regulation of the financial markets was blunted, to a large degree, by the United States. While the leaders agreed to create a new Financial Stability Board to monitor the financial system for signs of risks, they stopped well short of giving regulators cross-border authority, something France has long advocated.

Instead, the leaders agreed to more closely coordinate their regulation of “systemically important” financial institutions. They did not, however, agree on a mechanism to resolve cross-border disputes that might arise in the winding down of insolvent banks, an issue that might yet arise if global banks like Citigroup or Royal Bank of Scotland fell deeper in trouble.

“The regulatory part was close to a zero,” said Simon Johnson, a professor of economics at the Massachusetts Institute of Technology.

Mr. Johnson said that despite the failure to reach an agreement on more stimulus programs, he considered the meeting a success for Mr. Obama. Treasury Secretary Timothy F. Geithner had led the push to reinforce the monetary fund, and he won more than analysts had expected.

In addition to its vastly larger financial resources, the monetary fund was given a mandate to act as an early warning system for financial risks.

China is expected to contribute $40 billion. Japan and the European Union each pledged $100 billion. The United States has said it will contribute $100 billion, too, though that requires Congressional approval.

In addition to $500 billion in loans, the Group of 20 approved a one-time issuance of $250 billion in Special Drawing Rights, the synthetic currency of the fund, which will be parceled out to all its 185 members.

Reflecting the rise of China, India and other emerging nations, the leaders called on the fund to overhaul its management by 2011 to better reflect the economic weight of its member states.

“Today is the proof that the I.M.F. is back,” said the fund’s managing director, Dominique Strauss-Kahn.

Julia Werdigier contributed reporting.

A version of this article appears in print on , on page A1 of the New York edition with the headline: World Leaders Pledge $1.1 Trillion to Tackle Crisis. Order Reprints|Today's Paper|Subscribe